Surety Bonds vs. Insurance
A plain-language explanation of why a surety bond and an insurance policy are different financial tools.
Three parties instead of two
A surety bond generally involves the principal that must perform an obligation, the obligee requiring the bond, and the surety providing the bond. An insurance policy generally transfers specified risks between the insured and insurer, subject to its terms.
A bond supports an obligation
The bond form defines the obligation. Depending on the bond, the surety may expect reimbursement from the principal for amounts paid under a valid claim. This is different from treating the bond as liability insurance for the principal.
Requirements come from the obligee
A government authority, project owner, or other obligee normally determines the required bond form and amount. Bring the exact form and instructions rather than relying only on the bond’s informal name.
Underwriting still applies
The surety may review ownership, experience, credit, financial information, project details, contracts, and other information. A request does not mean the bond has been approved or issued.